While Bitcoin has experienced its share of ups and downs, interest in cryptocurrencies is on the rise. The public has expanded its focus beyond Bitcoin to lesser-known but promising cryptocurrencies such as Litecoin, Ripple, and Ethereum, each of which is witnessing steady gains as people grow more willing to invest in digital currency.
One of the hottest topics surrounding cryptocurrencies is the question of whether or not the governments will place regulations on this innovative technology. Those who wish for cryptocurrencies to remain free of regulations argue that lawmakers’ involvement will stifle growth and diminish the integrity of the market. However, it’s important to consider the potential risks that a market comprised of unregulated cryptocurrencies could pose.
The growth of cryptocurrencies has naturally led to the development of products and services that investors can use to access and store their digital currency in the marketplace. This includes cryptocurrency exchanges—digital marketplaces that act as intermediary platforms where owners can buy, sell, or convert their cryptocurrency, similar to a stock exchange.
The difference between a cryptocurrency exchange and a stock exchange is that the latter is bound by regulations that help to keep investors protected against fraud. A lack of security policies could expose them to the possibility of theft and loss. Without regulations that establish compliance laws as to which companies can call themselves cryptocurrency exchanges, investors could fall victim to thieves who want to advertise themselves as legitimate businesses when they are really no more than criminals who want to steal investors’ cryptocurrencies. The law can also require those exchanges which operate on a legitimate business model to abide by more stringent security measures in order to protect investors from hackers. Consumer protection is a major concern so long as cryptocurrencies remain unregulated.
Cryptocurrencies are vulnerable to criminals for three primary reasons: the inherent anonymity associated with their use makes them difficult for law enforcement to track, they can be easily converted to traditional forms of currency, and there is not much government involvement in the market. This makes cryptocurrency an attractive form of payment for illegal items sold on the black market, and sites such as Silk Road have taken that concern from theory to reality. Beyond contraband such as drugs, cryptocurrency can be used to make purchases that could perpetuate human trafficking and terrorism and make it much more difficult for authorities to put an end to them in order to protect the public.
Ultimately, the law may provide cryptocurrency with its best chance at having a real future in the global economy. Regulations would help to brand cryptocurrencies as a substantial investment worthy of the attention of the government, which could lead the general public to feel more comfortable sinking investments into this form of digital currency. This kind of legitimization is also likely to come with some government-backed guarantees and protections that will make people more likely to embrace the concept.
Without the support of the general public, cryptocurrency cannot become as well established as its proponents hope it will be. Remaining unregulated will make it much more difficult for the technology to shed its reputation as a volatile investment used by criminals and those willing to gamble their investments on an unstable asset.
Mikhail Golomb 